Newsletter

In a highly anticipated decision, S&P has elected to affirm South Africa’s credit rating on foreign currency denominated government debt at its current investment grade, just one notch above “junk”. This was considered the less likely option by economists that were surveyed by Bloomberg in November. The ratings agency did, however, cut the rating on South African local currency denominated government debt to two notches above junk.
The reasons cited include:
Political events transpiring which have been distracting the government from implementing reforms to enhance growth.
Low growth potentially having adverse consequences on the “public balance sheet”.
The immediate reaction of the currency is[...]

In the wake of the largely unexpected election win by Donald Trump, markets have reacted in some interesting ways. The US market reacted initially with a sell-off, but then whip-sawed into a mild relief rally. Treasuries are selling off and yields are rising on the back of what commentators are suggesting is the Trump “regime change”. Why is this happening? Markets are expecting growth and inflation from Trump’s proposed spending plans which would likely be funded by government bond issuance.
Indeed the sell-off is being seen in other markets too, especially emerging market currencies and bonds. (Source for all charts: Bloomberg)
Regarding[...]

The recent decision by Nissan’s CEO, Carlos Ghosn, to locate production of the new Qashqai and X-Trail at the Sunderland plant in the UK provokes some thought. In particular, exactly what decisions are being made within the UK government, as well as exactly what was agreed when Ghosn met Theresa May at 10 Downing Street recently.
Hitting the Brakes
At the Paris Motor Show earlier this month, Mr Ghosn threatened to cut investment into Nissan’s Sunderland manufacturing plant if no compensation was given by the government for costs borne as a consequence of a hard Brexit (an exit from the Customs Union[...]

Automation, a buzzword one often comes across, is not new. Indeed, automation has been replacing jobs in industry for hundreds of years; a romanticised etymology of “saboteur” has it that workers who were displaced by mechanical looms would retaliate in anger by throwing a wooden shoe, or “sabot”, into the machinery, thereby “sabotaging” the factory’s output and showing management the error of their ways.It was the automation and mechanization taking place in the textile industry in 19th century England that gave birth to the Luddite movement. Groups of workers who were put out of a job or under threat from[...]

One of the more exciting new fields in statistics and data analytics is that of machine learning. If you haven’t heard of it, you’ve almost definitely been affected by it. Companies and organisations from Netflix, Google, Apple, General Electric and even the NBA utilise and have used machine learning analysis to inform decision making. But, exactly what is machine learning, and why is everyone making such a fuss?Arthur Samuel defined machine learning as the “Field of study that gives computers the ability to learn without being explicitly programmed.” Effectively, a machine learning program is one which improves its performance in[...]

As developed economies grapple with the ever looming threat of deflation (which for France, Japan and Switzerland among others, is actually a reality), their respective central banks are turning to extreme measures to try and induce inflation. The measures? Breaking through the zero lower bound on interest rates and making them negative. Japan recently became the latest member of the negative rates1 club.The rationale is quite simple really - set a lower interest rate to try and encourage borrowing and spending in an economy, with the end goal being to generate economic growth. However, commercial banks are taking strain because negative rates are[...]

An oft-heard statement in financial media is something akin to the following:“Emerging Market currencies, such as the South African Rand, are under pressure due to their reliance on commodities”USDZAR – December 2015 Through March 2016 PerformanceSource: BloombergWhile this sentiment makes a bit more sense when considering South Africa’s stock market, the entirety of which (measured using the FTSE/JSE All Share Index) is composed of almost 14% in basic resources stocks, the same is not immediately true of the Rand. To exactly what extent does South Africa’s economy depend on the export of commodities?Immediately the question may seem impossible to answer[...]

To time the market or not to time the market, that is the question which plagues investment professionals the world over. There is something intrinsically (at first) appealing to the idea of timing the market (and eschewing the buy and hold strategy) – consider the following scenario.The market has dropped 2.2% and there is some fear-mongering on the financial news channels. You reckon that if the market turns down another 2% tomorrow then you’ll avoid the bloodbath, switch your equity investments into cash and wait out the storm. Things go somewhat your way, the market does take a knock and[...]

Income Tax Rules are “Acting” Up. The allure of foreign markets gleams ever brighter in the turbulent market conditions facing the ordinary South African investor. Considering that since December the JSE All Share Index has lost 4.22% and dropped (at its worst) 10.19%, and that the Rand has lost 10.93%, investors may look to diversify their investments internationally and invest in a more stable currency as an inflation hedge.How could the ordinary investor access such an investment? There are at least 3 possibilities:Local Unit Trust funds invested in foreign markets;Locally listed ETFs giving exposure to foreign indices and currencies;Offshore funds, ETFs[...]

Macroeconomic OutlookCentral Bank PoliciesFollowing Mario Draghi’s statement made at the December meeting of the ECB, the global macroeconomic environment should be dominated by a dichotomy of central bank policy this year. On the one hand, the December 2015 rate rise by the U.S Federal Reserve and 2016 rate hike schedule should tighten conditions in the world’s largest economy; one that had been at near zero rates of lending for almost a decade. In addition, the United Kingdom’s Central Bank governor, Mark Carney, has suggested that British consumers should expect a rate rise at some stage owing to a period of[...]

Water is the great-granddaddy of commodities. While the world is experiencing a largely supply induced commodity collapse, the most important commodity of all is slowly disappearing in many countries. This may at first seem to be a misleading statement – 2/3’s of the Earth’s surface is covered in water and water cannot ever “disappear”, it merely moves into a different stage of the water cycle. However the stuff that human beings need, fresh water, is rapidly becoming a huge problem. Population growth, climate change and inefficient provision are the prime culprits.For instance, the problem of water supply in northern China[...]

The U.S Dollar’s strength has been among the most closely followed stories in the financial news this year. A number of important events and factors have been built into the current level of the Greenback, however arguably the most important would be the U.S Federal Reserve’s monetary policy.After almost a decade of near zero benchmark interest rates, the U.S Federal Reserve aims to raise their rate by 25 basis points soon. How soon, is the all-important question that plagues the market. But, regardless of when, the market has already begun to impound this information into the price of every Dollar,[...]

Words can move the global market. Nowhere is this truer than in the U.S, where the most newsworthy topic influencing investment markets continues to be whether or not the U.S Federal Reserve (the Fed) will hike interest rates. Solid economic performance this year placed the rate hike on the agenda early on; however the rhetoric lately has been convincing investors that Janet Yellen and the Fed will be raising rates at their December meeting in just over a fortnight.Indeed, why shouldn’t they raise rates? Interest rate rises are used by central banks to increase the cost of borrowing, crimping economic[...]

The Greek banking sector has taken an absolute hammering in the past 6 months, losing 86% of value on the back of capital controls and the impact of political uncertainty stifling economic activity.Source: BloombergThe impact of mass withdrawals by panicked households resulted in a leakage of approximately €37 billion out of the banking system. Furthermore, the high incidence of non-performing loans resulted in reduced solvency among banks, amid poor economic conditions for households.Returning BalanceFor the proper functioning of Greece’s systemically important banks, the ECB has determined that €14.4 billion is required to make sure that they can remain solvent under[...]

This year marks the 13th edition of the Chinese Communist Party’s Five Year Plan, a vision for the economy put into motion every half decade. The official name is, however, “Five Year Guideline”, with this term being adopted from the 11th Plan to indicate their intention to shift away from a Soviet style command economy, to a market-based Socialist economy.The first plenary session commenced in 1953, with the country under the leadership of Mao Zedong. The key outcome of the plan was to industrialize; leadership aimed to develop almost 700 industrial projects, of which the Soviet Union would assist with[...]

The Chinese property market has been in a decline for about 2 years now. The problem? Oversupply.Economic law teaches us that an increase in supply for any good creates downward pressure on its price. To get a sense for the size of this oversupply, one needs to understand that we are talking about the most populous country in the world. The population of China is roughly 1.4 billion people (as of 2014 statistics), which is almost a fifth of the population of everyone on Earth. Consider further that the median age in China is 36 and that 54% of the[...]

The Chinese equity rally began in earnest in late November 2014, climbing 7.25% in one week alone. Fast forward to Monday 15 June 2015 and the euphoria had all but evaporated. From 12 to 19 June the Shanghai stock exchange dropped 13.32% and it continues to come crashing down, having lost 32.11% from its peak in just under a month. A similar story is playing out on the Shenzhen stock exchange, which has lost 40%. You would be forgiven for thinking that the title of this article is the name of a Chinese factory middle manager, but it in fact[...]

In less than a year, the price of crude oil has (literally) halved. Actually, it has more than halved – Brent crude was trading at around $115 per barrel last June and closed on Friday the 6th of February at around $57. A drop of 50.4% to be precise.Hectic scenes indeed. To say this collapse has been vicious would be an understatement. Why did this happen?If I had a dollar (U.S. please) for every time I have heard the term “oil glut” in recent months I would indeed be a very wealthy man!What exactly is a “glut”? The Oxford English[...]

“Wise men say only fools “Russia” in, but I can’t help falling in love with you.” On the last episode of “The Colder War”… How time flies when the world is experiencing serious global geopolitical tensions! For those just tuning in – a quick summary…2014 MarchRussian forces help separatists seize power in Crimea, which Russia then annexes, prompting the biggest East-West showdown since the Cold War.The US and its European allies impose asset freezes and visa bans on individuals involved in the Crimean breakaway.Crimea votes to join Russia – 97% favour Russia in Final Referendum Results. Putin recognises Crimea as a Sovereign[...]

#realcapaugustnewsletter #getwiththeprogram
On November 11 2013, a few minutes after 8 a.m. EST (Eastern Standard Time), news leaked out from a Canadian newspaper that Blackberry’s $4.7 billion buyout had collapsed. Wall Street wouldn’t find out for a full 180 seconds, when the newswires picked up the report in real time.
Investment clients at Dataminr, a New York City-based data analytics firm, had a leg up on the rest of the investing public. They received an email alert from Dataminr within seconds of the Blackberry news appearing in the Canadian newswire, and many of those clients – especially hedge funds – used the[...]